posted at 8:48 am on September 22, 2009 by Ed Morrissey

Four years ago, George W. Bush attempted to reform the entitlement program Social Security, warning that the system was accelerating into collapse and would soon run deficits. Democrats scoffed and claimed the Social Security system was solid and wouldn’t have problems for at least 50 years, as Harry Reid told PBS’ Jim Lehrer in June 2005. Just last year, the CBO — under the direction of Peter Orszag, now budget director in the Obama administration — claimed that the first cash deficits in Social Security would not come until 2019.

Now, however, the CBO has determined that Social Security will run cash deficits next year and in 2011, and by 2016 will be more or less in permanent deficit mode. Hot Air has exclusively obtained the summer 2009 CBO report sent to legislators on Capitol Hill but not yet made public, which shows that outgo will exceed income for the first time since the 1983 fix on an annual basis in 2010:

OASDI Summer 2009 projections: click to enlarge in new window

The numbers need explaining. The number to watch is the “Primary Surplus” number, which watches actual income and expenditures without the interest payments from the general fund. The interest payments mask the fact that costs have begun to outstrip income on an annual basis (individual months have gone into deficit in the past). One way to look at this, according to my sources, is to think of this as a mortgage, and in 2010-11, the income can’t make the payments, so the general fund has to cover them. Since the interest obligation compounds, the debt grows.

As we can see, this trend reverses itself temporarily from 2012-15, but the surpluses are minimal. By 2016, the deficits return, and begin to accelerate again. By 2019, the primary surplus runs $63 billion in the red, almost triple the deficit in 2017, showing the rapid decline of the Social Security system.

This demonstrates nothing better than the poor and politically calculated analyses that came out of the CBO during Peter Orszag’s tenure at the Congressional agency. Democrats wanted analyses that allowed them to ignore the problems in Social Security, and Orszag was happy to supply them. Douglas Elmendorf has had to right the ship at CBO while Orszag continues to blow his predictions at OMB, most notably in overall deficit projections, which Orszag had to admit were off by more than 40% and $2.2 trillion over the next ten years.

Of course, they were helped along by a complacent media unwilling to do math, and a host of apologists for the Left. Chuck Blahous at the Hudson Institute has a good rundown of those he calls the “mythmakers”. It’s worth reading in its entirety, as is Robert Reich’s “All is well!” blogpost from four months ago, apparently working off of the Orszag numbers from last year.

The situation at Social Security is much worse than this administration and Democrats in Congress want to admit. They want to continue busting the deficit and creating new entitlements while the existing ones careen towards collapse. The new data shows that time has almost run out for reform. Seniors will still get their checks, but those will increasingly rely on injections from the general fund and not revenues from Social Security payments. At this point, one has to wonder when SSA becomes a flat-out Ponzi scheme, and who the suckers will be when it blows up.

Update: Fixed a couple of typos, and also recalled (thanks to a Hot Air reader) that SocSec briefly ran an annual cash deficit before the 1983 fix.

Update II: Steve at No Runny Eggs, who has been keeping a very close eye on SSA, says that the CBO numbers project some eye-popping payroll-revenue growth numbers to get back to surpluses (briefly) by 2012. According to the numbers, CBO projects a 6.19% growth rate in 2012, and 5.69% in 2013, then dropping to 4.59% in 2014 and declining afterwards. Assuming that they only peak at the 4.59% number for all three years — still a rather optimistic projection — Social Security never actually comes out of its deficits at all:

Be sure to read Steve’s post to get the full explanation of his projections.

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Good for consumers (cheap food)-bad for us.
In the end, we are all better off letting agriculture products set their own price without govt intereference.
Depending upon other nations to feed us will be a huge mistake.
We have already seen some of it.
Wait for new poisonings & diseases.

I also worked in mgmt for a while. We had ranges of salaries to pay our programmer/analysts. These ranges were developed by HR doing studies of the whole metro area salaries being paid by other comapanies for programmer/analysts. We were not at the high end, trying to get good people to work for an average salary. If they were exceptionally qualified (ed and ex) they would be offered a little more. Once we had you, you were screwed. I, like right4life, left this environment and became an independent contractor.

ok then, why would a company pay 70k, when they could hire the same people at 50k?

right4life on September 22, 2009 at 2:33 PM

1. a newer firm, or expanding firm, wants to poach from other firms to staff up quickly.
2. a firm that has an inferior staffing profile (too many or too few people at different career stages) wants to alter their structure, and will pay to do it
3. a firm that has poor promotion prospects, but needs satisfied employees (money instead of promotion)
etc.

Didn’t Bush want to have people and the Government invest some of the Social Security funds into the equity market as part of his plan? I’m not sure we would now be better off if his plan had been implemented.

P.S. The Social Security laws already provide for an automatic reduction of benefits if the system approaches insolvency.

I find arguing about blame is boring. I’m more interested in where we go from here.

Say a business is in the position that a huge and long-term program is failing. It has obvious advantages, but is going into the red. Management would be trying to figure out how to cut their losses, achieve some of the advantages without going bust.

As a family, I hypothesize a similar situation might be my stock portfolio. It looked tenable for years, but is on very shaky ground. What can I do, particularly if I’m near retirement and can’t count on SS? Personally, I would work on eliminating debt, having tangible and sellable assets, cut life-style, start growing my own food, etc. How much good will whining about my stock losses do? The money is just gone. The SS money is just gone.

I was born in ’52, pure Boomer. But I agree that younger people should not have to pay SS. I’m responsible for me. Life is not fair, I learned that in kindergarten. ‘Should’ and ‘ought’ don’t really mean much when it comes down to what happens.

1. a newer firm, or expanding firm, wants to poach from other firms to staff up quickly.
2. a firm that has an inferior staffing profile (too many or too few people at different career stages) wants to alter their structure, and will pay to do it
3. a firm that has poor promotion prospects, but needs satisfied employees (money instead of promotion)
etc.

1) so they are going for the best people…and will offer more to get them.

2) same as 1…

3) now we are talking about non-economic factors in a job…which are subjective….

again like Mirimichi says, companies will pay what the market will bear…they won’t vastly overpay…they won’t vastly underpay…but work within a range, the MARKET sets….

ok then, why would a company pay 70k, when they could hire the same people at 50k?

right4life on September 22, 2009 at 2:33 PM

And this is exactly the method that salaries are set by. A company doesn’t pay what an employee is worth, they pay the cost of next cheapest replacement.

I’ve hired “a few” engineers in my day (as well as the support positions), and a 40% variation in compensation for equivalent engineering positions is BS(especially in entry positions such as just graduating). If the salary is varying by 20K, then something else in the package is changing to compensate (contributory health vs employee pay, 401K vesting and contribution levels, vision/dental, vacation, well you get the picture).

I was born in ‘52, pure Boomer. But I agree that younger people should not have to pay SS. I’m responsible for me. Life is not fair, I learned that in kindergarten. ‘Should’ and ‘ought’ don’t really mean much when it comes down to what happens.

jodetoad on September 22, 2009 at 2:40 PM

Add to the “I trust you” line I want to hear from pols going forward, the #1 campaign promise I want is an “emancipation proclamation.” Something along the lines of this:

“Anyone who is born after noon on October 1, 20XX, will be released from obligation to pay into the SSI scheme. They will be entirely on their own for their retirement plans, or lack thereof should they so choose. For those who are aged 50 and up, your benefits will remain as they are. For those under 50, and those born until noon on October 1, 20XX, you will receive SSI benefits kicking in at reduced rates (along a linear scale from full benefits down to zero, based on D.O.B.); said benefits starting at an age increasing by six months per birth year [picked a number out of my rear on that one; feel free to fiddle with it as needed] from the current age of starting benefits. Those currently enrolled in SSI early due to work-injury reasons shall be treated as over 50 years old for purposes of this program, but no further early payouts of SSI due to injury will be made.”

I’ve hired “a few” engineers in my day (as well as the support positions), and a 40% variation in compensation for equivalent engineering positions is BS(especially in entry positions such as just graduating). If the salary is varying by 20K, then something else in the package is changing to compensate (contributory health vs employee pay, 401K vesting and contribution levels, vision/dental, vacation, well you get the picture).

I gave you an answer several posts ago, you just prefer your opinion to facts, then start calling names when it is pointed out.

Vashta.Nerada on September 22, 2009 at 3:08 PM

your answer is BS…you threw out a salary number…are the benefits the same??

non-economic factors are subjective…but it really doesn’t matter…the market sets the price for wages…and I would bet your 20k difference is not that different when other factors such as benfits are thrown in.

so tell me, all other factors being equal…why would anyone go to work at a company where they make 20k less??

and why would a company pay 20k more for people???

right4life on September 22, 2009 at 3:06 PM

All other factors are never equal, that is the point. You are trying to argue that the market sets the wage, and trying to do so by eliminating all of the factors that ameliorate the economics of the situation.

All other factors are never equal, that is the point. You are trying to argue that the market sets the wage, and trying to do so by eliminating all of the factors that ameliorate the economics of the situation.

Vashta.Nerada on September 22, 2009 at 3:13 PM

again, yes the market sets the wages…and nothing you have said disputes that.

Back on the SS front (thanks count ), what happens when the SS fund is negative, and the feds can no longer borrow from it to balance their budget (most famously ala Clinton/Gore, but every administration since unified budget reporting came into being).

Back on the SS front (thanks count ), what happens when the SS fund is negative, and the feds can no longer borrow from it to balance their budget (most famously ala Clinton/Gore, but every administration since unified budget reporting came into being).

We haven’t had an Operating surplus since Johnson I believe.

Fighton03 on September 22, 2009 at 3:19 PM

Easy: paying for SS benefits becomes an increasingly larger portion of the federal budget until we decide not to pay for it anymore.

Back on the SS front (thanks count ), what happens when the SS fund is negative, and the feds can no longer borrow from it to balance their budget (most famously ala Clinton/Gore, but every administration since unified budget reporting came into being).

We haven’t had an Operating surplus since Johnson I believe.

Fighton03 on September 22, 2009 at 3:19 PM

Tax increases, issuance of more public debt, and if a Dem is in office, a further slash of the defense budget. Of note, at least at this point, that represents an unfunded liability that, if Social Security were a private pension fund, would result in a seizure of said fund and a fine levied against the (now-former) operator of said fund.

Tax increases, issuance of more public debt, and if a Dem is in office, a further slash of the defense budget. Of note, at least at this point, that represents an unfunded liability that, if Social Security were a private pension fund, would result in a seizure of said fund and a fine levied against the (now-former) operator of said fund.

steveegg on September 22, 2009 at 3:33 PM

and how do you sell those bonds when you already have a huge debt with no plan for controlling it….here’s a hint “when risk goes up expected rate of return goes…..” . I know preaching to the choir here, sorry.

and how do you sell those bonds when you already have a huge debt with no plan for controlling it….here’s a hint “when risk goes up expected rate of return goes…..” . I know preaching to the choir here, sorry.

The topics of SS and Medicare really p122 me off.

Fighton03 on September 22, 2009 at 3:38 PM

PREACH!

The $22 trillion question is, “What happens when nobody will buy the debt at any price?” There’s but 2 choices – print the cash to cover it and default.

The following analysis is based on the assumptions underlying the 2001 Report of the Social Security Trustees, which projected that the combined Old-Age and Survivors Insurance and Disability Insurance (OASDI) Trust Funds would be exhausted in 2038. Since the trust funds allow the Social Security Administration to pay benefits when program costs exceed tax revenues, benefits would have to be cut once the trust funds were exhausted. Therefore, Social Security would be able to pay only 73 percent of scheduled benefits in 2039, with further reductions relative to scheduled benefits in future years (see Box 1).

–Mirimichi, it’s more than the COLAs. There are provisions that would go into effect in the event of “insolvency”.

Everyone and i mean ALL americans KNEW
it was impossible for social security to survive..

I remember back 15 years before bill clinton and even then
Financial advisors were telling people to NOT even HOPE
social security would be there..

Their exact words were “If social security still exists and can send you a check that doesnt bounce, then we will consider it gravy money , but plan for it to fold completly”..

and here you are 15 years later and indeed even now
I am 15 years away from retirement and my only hope is
to pay OFF all of my bills and my house..

That is our retirememnt plan..
Pay off everything because these
IDIOTS DEMOCRATS and REPUBLICANS
Are so corrupt and vile they
actually believe the sheer Bullshit that is comming
out of their pie holes..

It is more likely that obama and the democrats will
cause the dollars collapse
and then just make a new currency..

Hell even CHINA is AFRIAD OF THESE IDIOT DEMOCRATS.

They called hillary over to Yell at her and obama..
Even the communists know this is not possible..

I think Ed’s a bit confused here. There’s a difference between cash deficits and overall deficits. Social Security will run cash deficits this year – which is bad – but won’t be in the red until 2019. Which is what the previous report and the Obama administration have been talking about all along.

This report is alarming nonetheless, but it’s nothing we didn’t already know

I think Ed’s a bit confused here. There’s a difference between cash deficits and overall deficits. Social Security will run cash deficits this year – which is bad – but won’t be in the red until 2019. Which is what the previous report and the Obama administration have been talking about all along.

This report is alarming nonetheless, but it’s nothing we didn’t already know

mmoran0226 on September 22, 2009 at 4:25 PM

If the Social Security “Trust Fund” were an actual Trust Fund where the interest on the investment were not immediately plowed back into said investment with no thought given to the possibility that either the principal or the interest would need to be tapped at some point, you would be correct.

However, every cent of “interest” earned by the Social Security “Trust Fund” on its “investment” in US Treasuries is sent right back to the Treasury, which has, as of the proposed FY2010 budget, no dollar amount attached to the likely-yet-unplanned tapping of said “interest”. Indeed, the entirety of the Social Security “Trust Fund”, both “interest” and “principlal”, is not counted as a potential liability to the Treasury.

I suspect that is actually only a single answer, because if the US tries to print cash at that level debts will get called immediately which will be default.

Fighton03 on September 22, 2009 at 4:16 PM

That scenario, which restated would be a refusal to accept a fresh-from-the-rubber-tree currency to settle the bond issue, would not be an actual default. It would, however, have the same effects as one.

That scenario, which restated would be a refusal to accept a fresh-from-the-rubber-tree currency to settle the bond issue, would not be an actual default. It would, however, have the same effects as one.

steveegg on September 22, 2009 at 4:59 PM

True, because even if debt is called, the US would be able to pay with rubber dollars. So you are correct.

This country is beyond broke, and now the government-schooled dumbMases are going to wake up to the unpleasant fact that the Social Security “trust fund” has never been anything more that an IOU tucked away in a dank, musty drawer somewhere in DC, and contains a balance of exactly $0.

I can’t wait to hear what slobbering Bawney Fwank’s lame-ass, totally gay excuses will be for this latest train-wreck, but we all know they are coming.

Didn’t Bush want to have people and the Government invest some of the Social Security funds into the equity market as part of his plan? I’m not sure we would now be better off if his plan had been implemented.

P.S. The Social Security laws already provide for an automatic reduction of benefits if the system approaches insolvency.

Jimbo3 on September 22, 2009 at 2:38 PM

There is no way to say this without sounding condescending, so for that I apologize as I don’t mean it to sound as much as it will sound…

However, you do realize that you can ‘bet’ against the market and make quite a bit of money right? My parents have made a KILLING in the market this past year shorting stocks and buying undervalued stocks when they were cheap. (they bought BOA when it was around $1.00 and sold a large hunk when it was around $13 again. You do the math on the ROI)

Second, how is an automatic reduction of benefits to avoid insolvency a good thing or even acceptable? If I end up paying in $30K into Social Security and end up getting a check for $50 a month in 2040 so they can claim they aren’t insolvent, I don’t see how that was a good use of my money or even performing anything even remotely approaching it’s intended purpose. (not that it does that now. People who use Social Security as their sole retirement plan are frankly utter morons)

I’m sorry but reducing benefits just so you can say you aren’t insolvent doesn’t make it NOT a failure. It’s nice that it won’t be siphoning money from other places but it will mean a lotta people paying into it now are getting the royal shaft.